Battle of the Chancellors: We don’t need a Plan B

Nearly a third of the audience at last night’s Spectator Battle of the Chancellors debate arrived not knowing whether George Osborne’s plan was working or whether a plan B was in order. It was all to play for, and the six speakers attacked the task with quite some gusto. Former Labour Chancellor Alistair Darling kicked off the debate by looking back to his own time in the Treasury, telling the audience that this was a crisis of the banking system by using an alarming anecdote of a conversation with a senior banker in the midst of the 2008 crisis.

‘He said, “I just want to give you some confidence, some reassurance: my board met last night and we agreed from now on we will only take risks we understand.”‘

Darling contrasted his own response to the crisis – ‘back in 2009, our economy was growing and it grew right into 2010′ – with the government’s approach, arguing that ‘austerity on its own isn’t working: we have not got growth’. The government ‘has to step in when the private sector won’t’, he said, arguing that public spending should be cut once the growth had returned, not beforehand.

But Tory MP Jesse Norman, opposing the motion ‘George Osborne isn’t working: we need a Plan B’, congratulated Darling for ‘his attempts to rein in’ Gordon Brown, and disputed the idea that the crisis had come purely from the banks. While supporting the chancellor’s plan as ‘absolutely the right one to take’, Norman’s speech was not a cheery one, saying this kind of recession will take of the order of six or 10 years to come out of, adding that he wouldn’t expect a return to proper, healthy growth before 2014 or 2018.

Former Liberal Democrat Treasury spokesman Lord Oakeshott took a rather dim view of Norman’s picture of the economy, teasing him that it wouldn’t sell well at the ballot box in 2015. He attacked the banks and said the coalition agreement hadn’t delivered on its first promise for the ‘banking system to serve business, not the other way round’.

Instead of arguing for a Plan B, Oakeshott pushed for a Plan C.

‘What we need instead is a far bolder plan for economic recovery. I call it Plan C for construction and capital investment rather than a Plan B, but we can all agree at least, on this side of the debate, that Osborne isn’t working. We must be mad to treat our record low long-term interest rates as some sort of virility symbol, instead of an unrepeatable opportunity to finance desperately-needed investment.’

But what would Alistair Darling’s Plan B have looked like? ‘We do not have to guess what he would have done,’ said Spectator editor Fraser Nelson. ‘Because he told us.’ He pointed to Darling’s April 2010 budget in which the plans the then Labour Chancellor had made for dealing with the economy were not so strikingly different to those followed by George Osborne when the coalition formed. ‘Let’s not pretend [George Osborne] is some savage cutter: he’s cutting by less than one per cent more’ than Darling, said Nelson. He later warned that ‘George Osborne has not covered himself in glory… he’s dealing with the debt in the same way that the late George Best dealt with the drink: by having more and more of it’.

Ex-Monetary Policy Committee member David Blanchflower talked the audience through a series of slides which showed this was ‘the worst recovery’. He said:

‘Plan A has demonstrably failed, this is the worst recovery in 100 years, now is the time to act because it will only get worse and it will hurt the young.’

He also criticised the Conservatives for talking the economy down from the start and damaging market confidence in Britain’s economic prospects.

Those proposing the motion for a Plan B talked about increasing public expenditure to stimulate growth, and they were joined briefly by former Conservative chancellor Norman Lamont. He supported the idea of a stimulus ‘if we started off from a point of strong public finances’. But he was ‘not sure by any means’ that this applied to Britain’s current financial situation. Like his two fellow speakers opposing the motion, he pointed to the fact that ‘this crisis began in 2007′.

When the floor opened up to questions, the first speaker asked why there had been such scant mention of quantitative easing. While Blanchflower predicted that the MPC would be likely to vote for more rounds of QE, Darling questioned whether this would continue to have a positive effect. And what would happen once the QE programme was over? ‘The answer is they do not have a clue,’ said Nelson, adding that there was a risk that ‘this recovery will turn out to be a QE-fuelled illusion’.

While those against changing course supported the idea of further supply-side reform to get the economy moving, Blanchflower was scathing: ‘There’s no evidence to actually support it,’ he argued, claiming that higher levels employment protection often correlated with a more healthy economy.

The debate lasted two hours. When those at the sell-out event crowded in to the hall, they voted 105 for Plan B, 133 against and 112 said they did not know. By the end of the debate, there was a clear winner: 154 supported Plan B, and 250 voted against a change of course.

There is one aspect of this debate we should be afraid off – Dont speak the truth because it “wouldn’t sell well at the ballot box in 2015″. We wonder why politics is held in such low regard, well that is it.

Daniel Maris

Why do you say the message wasn’t a cheery one? Most of the audience able to afford the ticket price (what was it this time? £50?) will probably have plenty in the bank and be benefitting from the tax breaks, the cheaper labour and the increased profit on their share ownership (wages might be frozen but profits aren’t). They are rather enjoying this period of “austerity”. It’s austerity for some but rather good times for others.

HooksLaw

What was clear was that nothing was clear. Nobody knows, they just have self sustaining opinions based on nothing other than their own prejudice. There probably is no right answer.

What makes Labour attack flawed, and clearly politicised rather than grounded in economics, is that they ignore outside events, such as the Eurozione crisis, and Darling is of course disingenuous and totally self serving when he talks about growth in 2009 and 2010; it was founded on his own self confessed ‘temporary’ measures.

Darlings idea of ‘temporary’ is clearly different to any definition I have ever come across..

M. Wenzl

Very surprising that the audience voted so overwhelmingly in favour of Plan A, given the escalating media storm against it, the growing uniformity of consensus among economists, and the quality of the anti-austerity speakers. Lamont, Norman and Nelson are all impressive but their arguments were hardly as powerful as those of the opposing camp (even if Oakeshott and Blachflower are effectively cranks).

I suppose this was a Spectator event, so most of the readers it reached would have instinctively been more sympathetic to austerity.. If the NS or the Guardian hosted a similar event I’m sure it would have been a different result.

HooksLaw

There is no escalating media storm. Add the BBC to Guardian and NS.

M. Wenzl

What about (bar welfare) the Mail, the Sun, as well as the Indie and (with big caveats) the Times and FT?

Sarge

So we should listen to the lying,eavesdropping fantasists of the media should we? Good luck with that.

Fergus Pickering

So the arguments of two cranks and Chancellor of the government that gave us a record deficit were powerful, were they? Heavens. What were they, friend?

M. Wenzl

You seem to be labouring under the illusion that the deficit is the only part of the equation.

2trueblue

Darling did nothing to help when he had the chance. He ran off to the EU during Liebores last days to give more of our money away. He is hardly in a position to criticise any one for talking down the economy, Liebore do it all the time and ‘Rent a mouth Balls’ is always on the box telling us how badly we are doing as a nation, part of plan B?

J Norman is right in that it will be some years before we see real growth. How can you hope to grow when we have been on a spending spree for 13yrs. During that time money was haemorrhaging out of the treasury, and yet what have we to show for it? Where is the evidence that we benefited? What massive legacy in our infrastructure do we have to point to and say “That is where it went.” Youth employment grew, single parenthood grew, child poverty grew, debt grew for everybody, to mention ones that have a massive impact for years. And all this at a time when it was all so good.

Cutting costs money initially. What do you use to pay redundancy pay with? Paying down debt is expensive, and the psychology of it restrains people from spending, thus slowing the economy. People have to rebalance their views of need over want. Gone are the days when people remortgaged to buy a new car or to go on holiday.

Dave

was the debate recorded? Will it be on youtube and/or the spectator website?

toco10

Let it not be forgotten that the discredited David Blanchflower helped the erratic and dysfunctional Gordon Brown create the recession in the first place by reckless overspending in the good times and compounded the rapidly downwards spiral in his own reputation by recommending that the self same Brown be made Head of the World Bank!Thank goodness David Cameron vetoed this insane suggestion.

telemachus

Gee whizz.
Gordon had dug us out of recession and started a growth spurt that was choked off by the coalition
The fact that a a mob of right wing Speccie groupies voted down plan B is not surprising
Pity Ed Balls was not debating

Colonel Mustard

And yet you are here too, lapping it up.

http://twitter.com/facetecltd FaceTec

Any useful idiot can create the illusion of growth by short term borrowing. But who going to pay of the increased debt, which is already at stratospheric levels. We can’t keep stealing our children and grand children’s future by loading them with debt to pay off our unsustainable lifestyle. I continue to be bemused how so called experts like Blanchflower are allowed to get away with their reckless plans for so called ‘growth’.

Growth comes from creating a favourable environment for companies to invest to make good and services that the rest of the World want to buy. Our over regulated economy, high Government spending, debt, high and complex tax system, poor education system and membership of the EU are what’s stopping us growing at a rate that will enable to compete with the BRIC’s

Ostrich (occasionally)

Your capacity for irony is limitless.

Sarge

Borrowing is growth is it? FFS why do you bother?.

Manners

Seeing as most of the audience looked like Stanley Johnson (or extras from The Thick of It), not that surprising that the result was a foregone conclusion.

Russell

In other words Isobel, your heroes from the labour side of the argument lost spectacularly.judging by the larger shift of the audience towards no change of course.
This is one of your anti government pro labour articles (yet another)which has backfired, not giving you the outcome you hoped for.

Adrian Drummond

Why should anyone listen to Blanchflower (and former Brown supporter) given his recent predictions have been miles of course?

M. Wenzl

Do you mean his 2010 prediction that the UK would enter double-dip recession?

JonathanD

I imagine Adrian is thinking of his 5 million unemployed if the savage Tories get in.

“”If large numbers of public sector workers, perhaps as many as a million, are made redundant and there are substantial cuts in public spending in 2010, as proposed by some in the Conservative Party, five million unemployed or more is not inconceivable.”

And if you are impressed by predictions of a double dip, then its worth noting that Andrew Lilco – the polar opposite of Blanchflower – was also predicting one, so that doesn’t lend any credibility to his views of what should be done.

Adrian Drummond

They would take too long to write them all down in detail but for a brief overview of his woeful forecasting check-out Guido Fawkes’ post: “Danny Blanchflower’s Terrible Tips” dated October 19, 2012.

M. Wenzl

That’s really only one terrible tip.

dorothy wilson

It is beginning, increasingly, as though we didn’t and that the figures will be revised.

Kevin

The debate does not read as though it lived up to its billing. I was hoping Norman Lamont would have been bragging about how his policy of targeted inflation contributed to Britain’s recovery from the ERM crisis. Until a moral interest rate policy is restored, why would anyone risk any capital investment? The lower interest rates remain the more capital is needed to squeeze out a relatively risk-free return.

Stop robbing Peter to pay for Paul’s housing bubble. There has been more than enough time to adjust.

George_Arseborne

Errrr!!!!!! what was the demography of the audience in terms or parties? Majority Tories… Then the result is clear. They will always support their failed policies anyway. Hurray for Plan A

Colonel Mustard

So what do Labour support other than failed policies? They have more practice at that anyway (and more failed policies) having spent 13 years vexing the people of this island with their socialist nonsense.

If interest rates are low then borrowing costs are low and therefore it surely becomes easier to make a return on investment – hence therefore encouraging investment.
Are you suggesting that banks will not lend because interest returns are low? But the money banks borrow at are correspondingly lower as are the returns they give on savings.

If interest rates are low it ought also to be more logical to spend than save, which rationally ought to be good for the economy.